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Key Employee Vacation Rights in California
California’s vacation policies offer key protections for employees.
Here are the main points:
- Earned vacation time is considered wages and cannot be forfeited
- Unused vacation must be paid out upon employment termination
- No legal requirement for employers to offer vacation time
While California doesn’t mandate vacation benefits, if offered, they’re protected by law.
Accrued vacation is treated as earned wages, doesn’t expire, and must be paid out when employment ends.
PTO Payout California
In California, employers are not legally required to offer paid or unpaid vacation time. However, if they do provide paid vacation, certain regulations must be followed regarding its administration.
Under California law, accrued vacation time is considered earned wages, accumulating as employees work.
Paid time off (PTO) is permanent and doesn’t expire. When employees leave the company, they are entitled to payment for any unused vacation days.
For example, if an employee earns two weeks of vacation annually (10 workdays), they will have accrued five days after six months of employment. Vacation pay cannot be forfeited, even if the employee is terminated.
Unless specified in a collective bargaining agreement, all unused vacation must be paid out upon termination at the employee’s final pay rate.
To ensure fairness, the California legislature requires the Labor Commissioner to apply equity and fairness principles in resolving vacation claims.
How to Calculate PTO Payout
To calculate PTO payout, follow these steps:
1. Determine unused PTO hours: Check employee records for accrued, unused PTO.
2. Calculate hourly rate: For hourly workers, use their standard hourly rate. However, for salaried workers: Divide annual salary by 2,080 (work hours per year).
3. Compute gross payout: Multiply hourly rate by unused PTO hours.
4. Apply tax withholding: Subtract 22% for supplemental income tax.
Here’s a comparison of hourly vs. salaried PTO payout calculations:
| Step | Hourly Employee | Salaried Employee |
|---|---|---|
| Rate | $15/hour | $60,000 ÷ 2,080 = $28.85/hour |
| PTO | 30 hours | 30 hours |
| Gross | $15 × 30 = $450 | $28.85 × 30 = $865.50 |
| Taxes | $450 × 0.22 = $99 | $865.50 × 0.22 = $190.41 |
| Net | $450 – $99 = $351 | $865.50 – $190.41 = $675.09 |
Remember, PTO payout timing depends on state laws and company policies.
Some states require payout upon termination, while others allow annual cashouts or PTO conversion programs.
Ensure compliance with local regulations and proper tax withholding when processing PTO payouts.
How Can I Cash Out My Vacation Time in California?
According to SCLG, when it comes to your vacation time, you can cash it out while you’re still employed or decide to leave your job [1].
This process, often called a “PTO cash out,” allows you to receive payment for unused vacation days, as vacation time is considered a form of wage under California state law.
Whether you resign, get terminated, or quit, you’re entitled to this payout, which must be included in your final paycheck.
There are two main scenarios where you can cash out your vacation time:
- upon termination or resignation
- while you’re still employed with the company
In either case, California law treats vacation time as earned wages, meaning you’re entitled to receive payment for any unused PTO, even if you’re still employed or when you leave the job.
This payment must be made at your final pay rate and included in your final paycheck.
Final Pay Rate for Unused PTO
In California, any unused paid time off (PTO), including vacation days, must be paid out at your final pay rate, regardless of the circumstances surrounding your departure.
Compensation for Unused Wages
Since vacation time is considered earned wages, employers are legally required to compensate you for any accrued PTO when you leave, no matter the reason for your departure.
Timing of Payout
The payout for unused PTO should be included in your final paycheck, covering your last pay period up to the day of termination.
If the final wages are not paid on time, the employer may face a waiting time penalty.
This penalty could amount to your daily wage for each day the final payment is delayed, up to a maximum of 30 days.
Collective Bargaining Agreements
If you are covered by a collective bargaining agreement, the terms of the agreement will determine how your unused PTO is paid out.
Cash-Out Arrangements
In some cases, you and your employer may agree to a cash-out of accrued vacation time while you’re still employed.
These arrangements are typically outlined in your employment contract or company policies
Regardless, you are entitled to payment for your accrued vacation time. They are a form of wage that you have earned. Employers are forbidden from taking vacation time back. They also cannot take away vacation time as a punishment for other workplace misconduct. Vacation time in California also does not “expire.” This means that “use it or lose it” vacation policies are forbidden in the state.
If your employer violates any of these regulations regarding vacation time payout or usage, you have the right to take legal action under California’s wage and hour laws to recover any unpaid wages.
Does California have a “Use it or Lose it” Vacation Policy?
According to Nolo, in contrast to certain states, California prohibits implementing “use-it-or-lose-it” vacation policies [3].
Such policies mandate that accrued vacation time must be utilized by a specified deadline, typically by the year’s end, or it is forfeited.
Because accrued vacation is regarded as earned wages, “use-it-or-lose-it” policies are deemed unlawful as they entail withholding owed wages from employees.
However, employers in California have the discretion to establish a cap on vacation accrual.
This means that once employees reach a predetermined number of days, their vacation accrual halts until they utilize some of their accrued time off.
This approach lets employers exercise some control over vacation accrual and prevents employees from accumulating excessive vacation time.
While there’s no set number for a permissible cap, the California Department of Labor Standards Enforcement (DLSE) – the agency that enforces California wage and hour laws – has provided some guidance. The DLSE has held that a vacation cap could be no less than 1.75 times the annual accrual rate.
However, the DLSE has since withdrawn that bright line rule and only states that the cap must be “reasonable.”
While a 1.75 cap is probably still the safest ratio, a 1.5 cap may also be within legal limits. The example below shows how the vacation cap works.
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References:
1. https://www.shouselaw.com/ca/blog/cash-out-vacation-time-california/
2. https://www.ptogenius.com/resources/blog/pto-payout-what-when-how
3. https://www.nolo.com/legal-encyclopedia/california-rules-vacation-paid-time-off.html